Head of research Stephen Toplis has issued a commentary highlighting how concerned the central bank is about house prices rising – from a point where they were already considered overvalued.

Toplis said the speed with which the Bank had implemented its macroprudential tools – including the ability to enforce loan-to-value restriction – indicated it wanted to use them as soon as possible.

“This reflects the fact that house price inflation continues to accelerate at a time when the central bank already considers houses to be overvalued. In turn, it believes that the banking sector is increasingly vulnerable to what will inevitably be (though we have no clue when) a future house price correction.”

Toplis said he supported the Reserve Bank’s moves to discourage speculators, particularly in Auckland.

“Be that as it may, what these prudential policy measures will do, in the very words of the central bank, is ‘reduce the actual supply of mortgage lending'. The question is: if the limited supply of new houses is the primary source of house price inflation, as we suspect, what are the longer-term implications of potentially further reducing that supply via credit rationing?”

He said New Zealanders would be the lab rats in the experiment. It would likely either mean a reduced supply of finance or increased borrowing costs.

Toplis said the macroprudential tools would have only a marginal impact on decisions about the OCR. BNZ still does not expect any movement in the cash rate until next year.